Foes: Costco liquor privatization plan bad for state

Backers of a plan that would partially privatize the state’s liquor operations by leasing the distribution system on Wednesday rapped a competing plan pushed by Costco, saying it would potentially cost taxpayers billions more than their idea.

Senate Bill 5933 was introduced introduced Tuesday at Costco’s behest. It would direct that all state liquor stores be closed by Sept. 1, 2012. The Liquor Control Board would be required to sell all state spirits assets. Private operators would be allowed to purchase the right – via auction – to take over and run state liquor stores in Washington. The measure’s sponsors say the aim is to increase revenue to the state from booze sales.

But Sandeep Kaushik, spokesman for the Washington Beverage Company, said 5933 only pencils out if there’s a “massive increase in liquor consumption, which is exactly what the voters were concerned about last year.” (Click here and here to see WBC’s numbers)

Two liquor privatization initiatives – one supported by Costco – were rejected in the November 2010 Legislature. Seattlepi.com is seeking comment from Costco and Sen. Rodney Tom, D-Bellevue, sponsor of SB 5933.

The WBC, which was created to lobby for the distribution privatization plan, says its idea would generate a total of $479 million for the state in the first five years of a 20-year lease. That figure includes $300 million, up-front payment. Kaushik says the Costco plan would only deliver about $380 million during the same time frame.

Over the next 15 years of the plan, Kaushik said assuming 3 percent annual sales growth, his idea would mean $1.2 billion more for the state. If sales went up 4 percent over that period, he said the difference would be more than $2 billion. That difference is largely because the WBC proposal is a public-private deal wherein the state would in the gross profits and still maintain ownership of sales, inventory and other considerations, Kaushik said.

Lawmakers are scrambling to find additional revenue because they face a $5.3 billion deficit over the next two years. Some people – including Treasurer Jim McIntire – worry that the distribution lease idea could be bad for the state because it is sacrificing future revenue in exchange for an up front payment of $300 million. For example, if sales didn’t go up by more than 3 percent annually under the distribution proposal, it’s estimated taxpayers could lose more than $1 billion compared to keeping things as they are.

It’s unclear what, if anything, the Legislature will do on this issue in the closing weeks of this session. Kaushik’s camp is hoping, at the least, they’ll agree to hear non-binding pitches for how a privatized distribution system would work.

Our bottom line is that there’s no harm to the state in allowing for a competitive bidding process to see what kind of offers develop.”

Scott Whiteaker, spokesman for Gov. Chris Gregoire, said: “Gov. Gregoire is leaning more toward SB 5933, but is still determining if it addresses her concerns about public safety, and looking at all the options on the table.”